Interest rates bleeding farmers dry -- expert

Dutch cows in the meadow

Another fall in global dairy prices has prompted calls for the Reserve Bank to cut interest rates immediately.

The GlobalDairyTrade Price Index fell for the fourth consecutive time today, with prices falling 2.8 percent to US$2235, the lowest level since September last year.

Dr Jacqueline Rowarth, an agribusiness expert at Waikato University, says New Zealand's high rate of interest is putting Kiwi farmers at a disadvantage on the world stage.

"New Zealand farmers are trying to play in the same field, the global field, as other countries and other countries' farms are buffered by their domestic supply, they're able to sell on the domestic market. We can't get access to that domestic market and we're paying interest rates that are so high the farmers can't cope."

Current interest rates on farm debt are between 4.5 and 5 percent, but some farmers are facing interest rates of up to 9 percent on their overdrafts.

Dr Rowarth says the Reserve Bank needs to lower the official cash rate (OCR) before we end up losing prime farm land.

"It needs cutting now... The banks are saying 'we can't put any more of the interest onto your debt because your debt-to-asset ratio is going wrong'."

Things are "looking grim" for farmers as banks assert more pressure on them, she says.

"At the moment with the Global Dairy Trade being about 60 percent of what farmers need to be able to be paid - a milk price that will cover their costs - it's looking grim  for the third year coming up."

Dr Rowarth says there are now dozens of farms up for sale around the country, because the banks won't allow famers to stay in business.

"What is happening is the best farms are being picked off by overseas investment, remembering that overseas most interest rates are considerably lower than the ones we're paying in New Zealand."

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